Every business needs working capital, which has evolved into fund-based and non-fund-based categories. LC Discounting is a highly efficient, non-fund-based facility that borrowers can conveniently access through banks.
In the Indian market, being a developing nation, small to medium to big businesses exist here. Without proper financial arrangements, small and medium businesses struggle. Thus, it can impact the overall profitability of the country’s economy. To counter this issue and exterminate the economic decline, banks, lending firms, and financial institutions provide unsecured business loan facilities. Lending to businesses without collateral causes the interest rates to go higher, and the loan duration shrinks.
Improves Business Cash Flow
Issued Against the Collateral or FD
Opening banks charge fees for issuing LC
The ICC issues Guidelines to Smooth International Trade
LC payment is Document-based
(*T&C Applied)
When the buyer and seller decide to buy and sell the particular product and want to justify the transaction backed by the LC discounting, the process of LC issuance and discounting of LC starts. The standard process in the LC is as follows –
The buyer has to issue the LC to the seller. So he has to approach his banker and request for the issuance of the LC. While applying for the LC the applicant has to provide all the required details for the LC issuance. That may include, the name of the seller, the swift code, amount, details of the products and shipments, etc.
Once all the details are received, the opening bank will issue the LC to the seller. Here the LC issuing bank or advising bank will add the name of the advising bank or where LC is expected to get discounted.
Once LC is issued, the advising bank will cross-check the authenticity and the given details. If advising banks that justify all the given inputs are correct then it will send the LC to the seller and if any corrections need to be done, it will again send the details to the issuing bank.
Receipt of the LC by the seller. At this stage, the seller receives the LC from the buyer. This is the confirmation to the seller that now his payment is confirmed. So, he starts the proceeding for the shipment of the goods.
Once the goods are manufactured and shipped to the buyer they will not reach immediately to the buyer. Here the seller will get the bill of lading from the port where he has shipped the goods. The seller will take this bill of lading and will submit it to the advising/ negotiating bank.
At this stage, the negotiating bank will take the bill of lading and confirm all the terms and conditions complied with. Once those are confirmed, the advising bank will issue the payment to the seller. This process is also known as LC discounting. At this stage, the advising bank will send the documents to the opening bank (The bank that has issued the LC) and will demand the payment.
Once the opening bank receives all the documents, the bank confirms everything with the buyer. Once the buyer confirms all the documents are OK, the issuing bank will take the payment from the buyer and will make the payment to the advising bank.
To the Seller
To the Buyer
Learn the execution process of LC Discounting from the case study.
This is very important, as documentation can be a significant factor in obtaining an LC discounting facility. However, the length of the process is determined by the availability of documentation. Here’s the list:
Terkar Capital facilitate LC discounting, a non-fund-based credit facility that offers working capital without collateral, competitive interest rates, flexible loan terms, and a quick application process. It is a great option for businesses in India looking for a reliable and affordable source of working capital.
So, get started today and fuel your business growth with LC discounting facility.
Letter of credit discounting is a process where the seller receives early payment from the bank against an LC issued by the buyer, improving cash flow and reducing working capital gaps.
LC discount charges are the fees applied by banks or financial institutions for advancing funds against an LC. These charges vary based on transaction size, tenure, and credit risk.
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